Vertical Integration with Capital Precommitment: Monopolization vs. Long-Run Ine±ciency
نویسندگان
چکیده
We analyze the impact of vertical integration when a monopolistic producer can make a capital commitment before deciding on output. For the vertically separated industry structure, we ̄nd that opportunism resulting from competition between retailers leads to a longrun underinvestment in capital. With vertical integration, the capital investment is e±cient but output is monopolistically restricted. We show that welfare may be higher with vertical integration. While the previous literature has pointed out that intraand inter-brand competition are perfect substitutes, this does not hold in our model as perfect inter-brand competition leads to the ̄rst-best allocation. JEL Classi ̄cation Numbers: C72, C73, D82, L10.
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